What is a Balance-To-Limit Ratio?

The balance-to-limit ratio is a comparison of the amount of credit being used to your total revolving credit available. This 🍸rate tells potential lenders h⛎ow much debt you are carrying compared to your available credit, or how much available credit they are using. It only applies to revolving debt, like credit cards.

A balance-to-limit ratio is also known as a credit utilization ratio, and is a significant factor in calculating your credit score. Having a low balance-to-limit ratio both overall and on each card can improve your 澳洲幸运5官方开奖结果体彩网:credit score. Learn more about what a balance-to-limit ratio is, how it plays a role in your credit score, and how to improve it.

How the Balance-To-Limit Ratio Works

The balance-to-limit ratio is important because it shows how responsibly you manage your available credit. 澳洲幸运5官方开奖结果体彩网:Credit scoring companies conside🎶r this ratio when determining your credit score. A lower balance-to-limit ratio shows y💛ou are a lower risk borrower, so a low ratio is better for your credit score than a high ratio.

Amounts owed count for 30% of a FICO credit score. So if you plan to take out a 🅠loan in the near future, be aware of your balan🌸ce-to-limit ratio. You can check on your overall debt picture by requesting a copy of your credit report from one or each of the three main credit bureaus, which are Experian, Equifax, and TransUnion. You are entitled to one free copy of your credit report per year, which you can also request through .

For credit scoring purposes, it doesn't matter whether you pay your balance in full each month or carry a balance if you keep your balance-to-limit ratio score low on each card. The lower you keep the balance-to-limit ratio, the more you will help improve your overall credit score. Many financial experts recommend keeping balance-to-limit ratios below 30% to have the best financial impact on your credit score.

Role of Balan🎃ce-to-Limit Ratios in Credit Scores

Your balance-to-limit ratio, or credit utilization ratio, is an important part of your credit score. It is a large part of your "amounts owed."

When you have a higher credi﷽t score, lenders are more likely to see you as a lower risk borrower and approve you for loans. With higher scores, you can also get better terms on your loan. On the🉐 other hand, when you have a low score, lenders view you as more a risk, so they may not approve you for a loan or they may charge you higher interest rates to make up for the risk.

How to Calculate Balance-to-Limit Ratios

For example, say you have one 澳洲幸运5官方开奖结果体彩网:credit card with a $2,ඣ000 limit and a $200 balance. The balance-to-limit ratio is easy to calculate by dividing 200 by 2,000 to equal 0.10. In other words, you would bee using 10% of their available credit.

If you have several credit cards, the balance-to-limit ratio is🌸 the sum of all the balances p♏lus the sum of all credit limits divided by the total balance and total credit limit.

For example, if card A has a $300 balance and a $1,000 limit, card B has a $400 balance and a $2,000 limit, and card C has a $600 balance and $3,000 limit, the balance total is $1,300, and the 澳洲幸运5官方开奖结果体彩网:credit limit total is $6,000. To determine the balance-to-limit ratio, divide $1,300 by $6,000 to get 0.22 or 22%. In this case, you wouldꦉ🦄 be using 22% of your total credit.

The Bottom Line

Your balance-to-limit ratio is a key part of your credit and is a major factor in the calculation of your credit ღscore. Lenders ൩look at this metric to determine whether you are a risky borrower. You may be approved or denied a loan based in part on your balance-to-limit ratio. Try to keep your debt as low as possible to improve your balance-to-limit ratio by making more than the minimum monthly payment.